I write about how technology shapes society, and vice versa. In addition to blogging for Forbes, I cover tech policy for Ars Technica. I'm an adjunct scholar at the Cato Institute and have a master's degree in computer science from Princeton. I live in Philadelphia with my wife and our two cats. There's more information about me on my website, including a comprehensive disclosure statement. Please follow me on Twitter. You can email me at contact@timothyblee.com. (I don't really like Google+ but I need to put my profile here to show up in Google search results)

Microsoft's Android Shakedown

In the 1980s, attorney Gary Reback was working at Sun Microsystems, then a young technology startup. A pack of IBM employees in blue suits showed up at Sun headquarters seeking royalties for 7 patents that IBM claimed Sun had infringed. The Sun employees, having examined the patents, patiently explained that six of the seven patents were likely invalid, and Sun clearly hadn’t infringed the seventh. Reback explains what happened next in this classic Forbes article:

An awkward silence ensued. The blue suits did not even confer among themselves. They just sat there, stonelike. Finally, the chief suit responded. “OK,” he said, “maybe you don’t infringe these seven patents. But we have 10,000 U.S. patents. Do you really want us to go back to Armonk [IBM headquarters in New York] and find seven patents you do infringe? Or do you want to make this easy and just pay us $20 million?” After a modest bit of negotiation, Sun cut IBM a check, and the blue suits went to the next company on their hit list.

This story sheds light on the recent string of stories about Microsoft demanding royalty payments from various companies that produce smart phones built on Google‘s Android operating system. Intuitively, this doesn’t make much sense. Most people would say that Google has been more innovative than Microsoft in recent years—especially in the mobile phone market—so why is Microsoft the one collecting royalties?

The reason is that Microsoft has more patents than Google. A lot more. The patent office has awarded Google about 700 patents in its 13-year lifetime. Microsoft has received 700 patents in the last four months. Microsoft’s total portfolio is around 18,000 patents, and most of those were granted within the last decade.

Even if you think Microsoft is more innovative than Google, the engineers in Redmond obviously haven’t been 25 times as innovative as those in Mountain View. So why the huge discrepancy?

Getting software patents takes a lot of work, but it’s not primarily engineering effort. The complexity of software and low standards for patent eligibility mean that software engineers produce potentially patentable ideas all the time. But most engineers don’t think of these relatively trivial ideas as “inventions” worthy of a patent. What’s needed to get tens of thousands of patents is a re-education campaign to train engineers to write down every trivial idea that pops into their heads, and a large and disciplined legal bureaucracy to turn all those ideas into patent applications.

Creating such a bureaucracy has a high opportunity cost for small, rapidly growing companies. Most obviously, it requires spending scarce capital on patent lawyers. But it also means pulling engineers away from doing useful work to help lawyers translate their “inventions” into legal jargon. And that, in turn requires a shift in corporate culture. Startups are innovative precisely because they avoid getting bogged down in paperwork. Convincing engineers to pay more attention to patent applications necessarily means that they spend less time doing useful work, and that can be fatal to a young startup.

The opportunity costs to getting patents is much lower for mature software companies like Microsoft or IBM. They tend to have more money and engineers than they know what to do with. And their software development processes are already slow and bureaucratic. So it’s much easier to add a “fill out patent applications” step to the official software development process, and the negative effect on engineers’ productivity is much smaller.

These differences are exacerbated by the long time lag between when applications are filed and patents are granted. Most of the 52 patents Microsoft received this week were filed between 2006 and 2008. One was filed as early as 2003. In 2006, Microsoft had been steadily cranking out patent applications for years, while Google was only just becoming large and profitable enough justify devoting serious resources to patent filings. So even if Google cranks up its patenting machine to Microsoft’s level this year, it won’t start seeing the fruits of that effort until around 2015.

You might think Google could deal with this by just not infringing Microsoft’s patents, but that’s not how software patents work. Android has roughly 10 million lines of code. Auditing 10 million lines of code for compliance with 18,000 patents is an impossible task—especially because the meaning of a patent’s claims are often not clear until after they have been litigated. Most Silicon Valley companies don’t even try to avoid infringing patents. They just ignore them and hope they’ll be able to afford good lawyers when the inevitable lawsuits arrive.

So Android, like every large software product on the planet, infringes numerous Microsoft patents. And Microsoft is taking full advantage. They’re visiting Android licensees and giving the same sales pitch Reback remembers from a quarter century ago. “Do you really want us to go back to Redmond and find patents you infringe? Or do you want to make this easy and just pay us?” Once again, many of the targets are writing checks to make the problem go away.

The result is a transfer of wealth from young, growing, innovative companies like Google to mature, bureaucratic companies like Microsoft and IBM—precisely the opposite of the effect the patent system is supposed to have.

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The author of that article has an obvious axe to grind against the USPTO, but he makes a good point. It sounds like a classic case of a major bureaucracy becoming a self-perpetuating monstrosity that demands more funding and extends its reach outwards, much like what happened with the DEA.

Personally, I think the patent system is a joke. The fact that it’s possible to make a business out of buying up patents to shake-down businesses without actually producing anything is proof of that. Maybe they could put some “active use” requirement in place for patents, and clear out the patent trolls.

It’s not the patent system in general, though there are issues with it — the really crazy stuff comes in with software patents.

Most of the time, for stuff like machines, patents work fine. But code is different than machines in fundamental ways that make its regulation via the patent system pretty absurd — at least the patent system we have now.

I accept there is a regime under which software patents could work, but for whatever reason the US didn’t evolve into one.

If you start to look at the actual things that are being patented, with any knowledge of how code is written, your head will explode. The scary parts are where a company patents a method or process, as with happened with the Netflix/Blockbuster queue case, where they literally patented an ordered, changeable list. Under no circumstances should that patent have been granted, but it was.

Very interesting piece. I heard recently that one reason IBM has so many patents is that its bonus system for engineers was structured around patenting (though that encouraged the patenting of a lot of small incremental change – another waste of the patent system?). Clearly what you are describing is not good but a question – do you really think of Google as a young, growing innovative company?

Well, it’s relative, obviously. They’re not going to grow as much in the next decade as they did in the last. But yes, I think there’s a lot of potential for further growth. The mobile phone market is still pretty young, for example, and Google looks destined to dominate it.

More to the point, Google is effectively being punished for its failure to file more patent applications five years ago. At that point it clearly was a young, growing company.

You make interesting and educated points, but actually you never proved that Google did not violate the patents. Given the time it takes for a patent to be approved, it is likely Google created the same or similar code. Sometimes there is only one way to solve a problem/feature. And it would not be the first time Google violated a patent. In the recent case of Apple vs Nokia, Apple clearly violated patents from Nokia and agreed pay royalties going forward. Not a settlement like the IBM vs Sun reference, but an agreement. The same occurred with Nokia vs Qualcomm. Your article has interesting points about how technology industries work. But large companies are taking on large companies in this space as well. Eric Schmidt knows how this works and should have built a strong legal staff during. He knew the Sun Story before you did. Regardless, your article is fact-less regarding Google vs MS patent violations. And it is opinionated (e.g. Google is destined to dominate. I believe the article has value, but it is more of an editorial than a fact based news story. It belongs more on the Op/Ed page.

There are two big issues here. One is that software creation has become virtualized in the same way that a mailing list has – a much lower cost because of advances in electronic technology. Consider – was the first ‘do loop’ patentable? Would the first implementation, in some horrendously expensive fifties computer have been patentable (almost certainly yes)? Is some simple code written for the first time today, at very low cost, patentable? Or is the rush of similar ‘inventions’, also from low cost, enough to show that the code is no longer unique or non-obvious?

The second issue, how patents are used in business, isn’t a patent issue at all. It is a question about how to deal with an asset class that has morphed to where the old laws that deal with it are dinosaurs. Inevitably, powerful interests like Microsoft will use the situation to their own advantage.

So the real question remains what kind of patent system would work, especially for software, where the problems are extreme?

One crucial aspect ignored in this piece is that this is not about the money, but rather about distorting the market. If it were about generating revenue from licensing, Microsoft would (and should) have offered to license its patents to Google. Their intention is to intimidate potential Google customers and make it as painful as possible, or simply financially untenable, to use Android. This makes Microsoft’s own mobile OS more attractive by comparison. Microsoft is threatening Google customers in explicit terms: use Android and we’ll personally, actively drain you financially through the courts.

To a lesser degree patents are also used as a general club to beat companies into obedience, like suing Motorola after they declined to introduce a Windows Phone device.

The mobile OS market is right now vibrant, competitive and exploding with innovation. Microsoft is on its way to gain a large market share through patent misuse rather than competition. This is causing huge damage, not only to the companies involved but to the market itself, which is a sad loss for everyone.